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Retirement seems like a long way off for many of us these days. Each year, Statistics Canada publishes what Canadians think they need for retirement. And every year the number is getting higher and higher. I wouldn’t be surprised if by 2025, retirees think they need $2 million. That’s why we’re taking a look at some money-saving hacks to help you get that half done.
That hack? Compound interest!
Compound interest is a powerful tool that allows investors to earn interest on both their initial investments and their accumulated investments over time. The effect of compound interest has a huge impact on wealth accumulation and can greatly enhance the way you grow your wealth over the long term.
For example, let’s say you’re considering an investment that has an annual compound interest rate of 8%. If you invest $10,000 and leave it alone for 30 years, accumulating compound interest along the way, here’s what happens. alone You’ll make $100,627.89! There are no further contributions.
But the money-saving hacks don’t stop there. Because as you can see, it’s not so much that you invest and forget. Instead, you need to have a consistent plan. That means starting early and investing often.
investment is the key
Let’s be clear: it’s never too late to invest. However, if you invest early and often, you can go far. few Achieve millionaire status with this money-saving hack. The sooner you start, the more time your investment will have to compound. In fact, it can be the difference between reaching millionaire status and having hundreds of thousands of dollars in your retirement savings.
For example, if you want to invest for the next 30 years, how much should you save? And where should you invest it? Diversification and risk management are key here. Investors should meet with a financial advisor to develop a strong strategy to create diversification across the board. This spreads the risk and reduces the chance of lower returns.
how much and how often
Suppose you want to invest in a strong company that has proven to be tenacious in terms of investments.For that, I consider royal bank of canada (TSX:RY). The bank currently has the largest market capitalization on the TSX and has a dividend yield of 4.14%. The average annual growth rate (CAGR) over the past 10 years is 6.3%, and the dividend has a CAGR of 7.5%. Now let’s say you can afford to put $500 a month aside for retirement. That’s $6,000 a year. Here’s what you can accomplish:
| Year | stock price | Number of shares owned | Annual dividend per share | annual dividend | Purchase new shares | new balance |
| 1 | $133.00 | 45.00 | $5.52 | $248.40 | 43.00 | $12,911.36 |
| 2 | $146.72 | 88.00 | $5.93 | $521.84 | 42.00 | $20,274.80 |
| 3 | $155.96 | 130.00 | $6.37 | $828.10 | 41.00 | $28,350.09 |
| Four | $165.79 | 171.00 | $6.85 | $1,171.35 | 41.00 | $37,360.76 |
| Five | $176.23 | 212.00 | $7.36 | $1,560.32 | 40.00 | $47,207.16 |
| 6 | $187.33 | 252.00 | $7.91 | $1,993.32 | 40.00 | $58,145.96 |
| 7 | $199.13 | 292.00 | $8.50 | $2,482.00 | 40.00 | $70,277.76 |
| 8 | $211.68 | 332.00 | $9.14 | $3,034.48 | 40.00 | $83,707.44 |
| 9 | $225.02 | 372.00 | $9.83 | $3,656.76 | 40.00 | $98,550.40 |
| Ten | $239.20 | 412.00 | $10.57 | $4,354.84 | 41.00 | $115,184.31 |
| 11 | $254.27 | 453.00 | $11.36 | $5,146.08 | 41.00 | $133,523.26 |
| 12 | $270.29 | 494.00 | $12.21 | $6,031.74 | 42.00 | $154,003.52 |
| 13 | $287.32 | 536.00 | $13.13 | $7,037.68 | 43.00 | $176,838.18 |
| 14 | $305.42 | 579.00 | $14.11 | $8,169.69 | 44.00 | $202,263.18 |
| 15 | $324.66 | 623.00 | $15.17 | $9,450.91 | 45.00 | $230,533.48 |
| 16 | $345.11 | 668.00 | $16.31 | $10,895.08 | 46.00 | $261,938.04 |
| 17 | $366.86 | 714.00 | $17.53 | $12,516.42 | 47.00 | $296,767.17 |
| 18 | $389.97 | 761.00 | $18.84 | $14,337.24 | 49.00 | $335,777.40 |
| 19 | $414.54 | 810.00 | $20.25 | $16,402.50 | 51.00 | $379,408.26 |
| 20 | $440.66 | 861.00 | $21.77 | $18,743.97 | 53.00 | $428,135.88 |
| twenty one | $468.42 | 914.00 | $23.40 | $21,387.60 | 55.00 | $482,494.17 |
| twenty two | $497.93 | 969.00 | $25.16 | $24,380.04 | 57.00 | $543,061.80 |
| twenty three | $529.30 | 1,026.00 | $27.05 | $27,753.30 | 60.00 | $611,037.90 |
| twenty four | $562.65 | 1,086.00 | $29.08 | $31,580.88 | 63.00 | $687,216.90 |
| twenty five | $598.10 | 1,149.00 | $31.26 | $35,917.74 | 66.00 | $772,472.70 |
| 26 | $635.78 | 1,215.00 | $33.60 | $40,824.00 | 69.00 | $867,765.72 |
| 27 | $675.83 | 1,284.00 | $36.12 | $46,378.08 | 73.00 | $974,882.37 |
| 28 | $718.41 | 1,357.00 | $38.83 | $52,692.31 | 77.00 | $1,095,102.78 |
| 29 | $763.67 | 1,434.00 | $41.74 | $59,855.16 | 81.00 | $1,229,846.70 |
| 30 | $811.78 | 1,515.00 | $44.87 | $67,978.05 | 86.00 | $1,381,534.92 |
He may still have a ways to go to reach $2 million, but he currently has $1.38 million in hand. It’s all thanks to compound interest and stable investments.
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